XLF Financials ETF Daily Chart; V Bottom; Neggie D Spankdown; Gap; Potential Island Reversal and/or 2-Leg Bear Flag; Financials Remain Mired in Cyclical Bear Market for 6 Months

The banks receive the neggie d spankdown (red lines and arrow) since the chart indicators were out of gas. XLF, which also contains insurers and other financial companies, plummets from the upper band to the lower band and then receives a bounce from the lower band violation and oversold condition in the stochastics. 

The XLF came down and bounced off that blue horizontal price support line. That blue gap places the banks on an island above 25.0. If price collapses down through the gap to 24.7-ish and trends lower, that would be an island reversal pattern. Price may simply work lower and fill the gap.

The price support, oversold stoch's and lower band violation conspire to provide the bounce last week in the banks. Interestingly, the bounce occurs with not one sliver of positive divergence in play; you do not see that often. All indicators are weak and bleak in this time frame as price makes the lower low so lower lows in price would be expected going forward. Since the lower band was violated, however, the middle band at 26.04, and falling, is on the table. The 20-day MA is also 26.04 and dropping. Ditto the 150-day MA at 26.08 and falling. Note the negative slope of the 150-day (pink) which tells you the banks fell into a cyclical bear market in Q4 and remain there. The 50-day MA is at 26.01 and rising. So there is serious price resistance at the 25.90-26.10 area.

XLF is down -13% off the top one year ago mired in correction territory (-10%). At the end of last year and early this year, the XLF dropped more than -20% and down -26% off the top which is bear market territory by this metric (-20%).

The Keybot the Quant algorithm, Keystone's proprietary trading robot, is identifying the banks as the single most critical parameter influencing stock market direction currently. Keybot identifies XLF 25.86 (yellow bar) as the bull-bear line in the sand. Price tagged this level on Friday's opening bell but fell back and did not mount another attack for the rest of the day with XLF closing at 25.71. If XLF 25.86 is taken out to the upside, bulls will throw confetti as the stock market catapults higher. If XLF remains below 25.86, the stock market will start to fall apart to the downside.

The orange lines show the V bottom pattern that occurred round-tripping the banks from sorrow back to joy. The drop off the top and sideways stutter last week hint at a potential two-leg bear flag pattern which would target the 23.4-24.0 cluster area with the second leg down. So XLF may sneak up to tease that resistance gauntlet at 25.90-26.10, however, the chart is weak and hints at more selling ahead in this daily time frame. As long as the 150-day MA slopes lower indicating an ongoing cyclical bear market for the banks, the future appears bleak. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 1:03 PM EST on Monday, 4/1/19: The XLF is up +2% to 26.23 well above the key 25.86 number called out by Keybot so the stock market jumps higher. The banks spring to life. Chips are also rallying more than +2% today. The bulls are throwing confetti and singing songs.